That was not the best beginning of the new year for many nations. Some of them are witnessing the decline of their national currencies. The devaluation took hold of the emerging market countries; their regulators are in a cleft stick. Some of them are not able to maintain the rates; Argentina, for example, gave up trying after the peso lost 15%. Meanwhile, the Turkish lira, Russian ruble, and South African rand hit the multi-year lows. The investors turned their attention to the U.S. bonds and started withdrawing money from the emerging markets.
Such a turn of event is one of the worst scenarios that could unfold after the American QE trim. Besides, China’s government decision to make every effort to improve the domestic demand spread panic among the investors. During the last year alone, the emerging markets lost $58.7 billion. Apart from external pressure, the internal problems also add fuel to the fire. Turkey, for example, is suffering the political crisis and corruption, the South African is unable to eliminate poverty in the country for twentieth year in a row, Argentina is still fighting with the 2002 crisis aftermath.
Presently, the regulators are facing a dilemma: upgrade the interest rates to limit inflation and support the national currencies rate or let the high interest rates to reduce the volume of loans and hamper the economic growth. According to Peter Kinsella, strategist at Commerzbank, in case the central banks of these countries do not pick their steam up, they will miss the chance, and the nations will be hit by a crisis. Moreover, the experts have no doubts that only fundamental changes and structural reforms could bring the investors back.
